Adam Burn, Principal at Aon
Employees born between 1966 and 1980 - the so-called Generation X - are not saving enough for retirement and now do not have enough time to top up their savings, new research has found.
The Pension Policy Institute’s November 2019 report, Generation VeXed: Solving the retirement puzzle revealed that in comparison to the Baby Boomer generation and Millennials, Gen X have been saving the least over the years resulting in approximately 4.3 million Gen X employees who are due to reach retirement between 2031 and 2047 being considered at ‘greater risk’ than other generations of retiring with insufficient savings to live comfortably.
The report highlighted that whilst auto-enrolment has ensured that millennials and subsequent generations are potentially now saving enough each month to fund a comfortable retirement, the decline in private sector defined benefit (DB) pensions, the reduction in state pension, the lack of compulsory pension saving for much of their careers and the growing self-employed trend has hit Gen X the hardest.
Many employees that have retired until now have had the comfort blanket of a DB pension income, the benefit of getting on the property ladder when housing was affordable and raising children that could afford to leave home after a free education. Gen X are the first retiring generation that don’t benefit from some or even all of these.
This situation is exacerbated by both the later state pension age and the relatively short period between the introduction of automatic enrolment legislation and retirement meaning that additional pension benefits will not be accumulated in the way that millennials and subsequent generations may well do.
Hopefully, the Pension Policy Institute report will raise the public awareness of this issue and enable some of the later retiring Gen X individuals to address the issue however some will, inevitably, look to an employer to help them meet their retirement aspirations.
Many employers may debate whether it is their responsibility to deal with this problem however failing to at least highlight the situation to employees could result in Gen X employees unable to afford retirement. For an employer this could mean an ageing disgruntled workforce blocking advancement for other employees so potentially impacting company productivity and increasing benefit costs so, there is an argument that it is potentially negligent for an employer to ignore this issue.
In addition, women – who are statistically more likely to work part-time and therefore receive less pay than their male counterparts – will find it harder to close their savings gap. The gender pensions gap between men and women is estimated to be around £120,300, the report found, with women’s estimated pot to be around £106,200 in comparison to £226,500 for male employees.
With state pensions now equalised to the same age for both genders, the situation for Gen X women in the workplace is even more severe. Career breaks and the gender pay gap tend to result in lower pension pots being accumulated by retirement age resulting in less potential income in retirement for women who, according to the latest information from the Office of National Statistics, will also live longer than their male counterparts.
Overall, as Generation X employees start to reach the age that pensions are accessible this issue is likely to gain greater profile requiring the involvement of society, government, the financial community and employers in order to assist individuals to understand the options available and the steps to take to address this matter. Hopefully, it won’t be too late for too many Gen X individuals.
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